No policy change on oilsands processing

Hughes also suggested the Progressive Conservative government won't alter its policies to meet the goal set by former premier Ed Stelmach of processing two-thirds of Alberta's bitumen into light oil by 2020.

"It's an interesting goal," Hughes said in an interview.

"If that was physically possible with private sector initiatives, then that would be something we could accomplish. But I would argue that if the only way to accomplish that goal is by doing things that are financially and economically unnatural, then I would say that would not be wise for Alberta."

In 2011, 56 per cent of bitumen was upgraded in the province, according to the Energy Resources Conservation Board (ERCB). With an expected major increase in oilsands production, that figure is expected to drop to 44 per cent by 2021.

That figure could drop further with Suncor's Wednesday cancellation of Voyageur, which was intended to convert 200,000 barrels of bitumen per day from the Fort Hills oilsands mine into refinery-ready synthetic crude oil starting in 2017.

A glut of light oil in the North American market helped make the economics of the project unfeasible.

The Tory government has made gaining access to new markets through pipelines to the U.S. Gulf Coast, B.C. and Eastern Canada a priority.

While the price differential between conventional oil and bitumen has narrowed considerably in recent weeks - shrinking to $14.35 a barrel on Thursday - the government says the discount for oilsands has led to a massive revenue shortfall this year.

Hughes said the province shouldn't be concerned only with increasing upgrading within its own boundaries.

"Adding value to Alberta products anywhere in Canada is really good for Alberta as well. It doesn't overheat our economy ... and it does get our product to the market in a way that creates goodwill in other parts of Canada," he said. "It creates jobs in other parts of Canada, it creates economic stability in other parts of Canada."

But the Tories have faced considerable criticism, from the NDP and elsewhere, for focusing their attention on promoting pipelines to ship bitumen out of province, rather than providing incentives for upgrading.

Alberta Federation of Labour president Gil McGowan said the Voyageur situation shows that oilsands processing can't be left solely in the hands of the private sector.

Upgrading within the province will create products that fetch a better price than raw bitumen and create thousands of new jobs, he argued.

"Alberta will never move up the value ladder unless the government gets involved more aggressively in decisions over how our resources are developed," McGowan said, adding he wants actions such as conditions included on oilsands leases, not "subsidies or handouts."

Hughes said it was "naive" to think the province has the capacity to process all the bitumen produced.

But he noted the government does provide incentives through its Bitumen Royalty in Kind (BRIK) program, in which the province receives oil for its share of royalties from producers. The program is being used with the $5.7-billion North West Upgrading project near Edmonton, which will see bitumen refined into diesel.

In February, Premier Alison Redford and Saskatchewan Premier Brad Wall held preliminary discussions on a strategy to work with Ottawa and industry to boost Western Canada's refining and upgrading capacity.

Hughes said the governments are interested in talking to companies about whether a new model akin to the BRIK program could be developed to provide further incentives to industry.

But direct investment is not on the table and private companies must be in the lead, he said.